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RBS to take £$3.1b charge tied to US mortgage probe

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Royal Bank of Scotland Group Plc said it will take a £3.1 billion (US$5.55 billion) charge in its fourth-quarter results, as the lender used other banks' settlements to estimate the impact from a US probe into sales of mortgage securities.

[LONDON] Royal Bank of Scotland Group Plc said it will take a £3.1 billion (US$5.55 billion) charge in its fourth-quarter results, as the lender used other banks' settlements to estimate the impact from a US probe into sales of mortgage securities.

The lender is continuing to cooperate with the US Department of Justice on its investigation, though timing of a settlement remains uncertain, the Edinburgh-based bank said Thursday in a statement. RBS has now taken £6.7 billion of provisions related to as many as 15 mortgage investigations and lawsuits, and said further charges may still be needed.

RBS is among the final global lenders yet to settle in a years-long probe that's garnered more than $50 billion in penalties for the DOJ since it began investigating the pre-crisis sale of mortgage bonds. Bloomberg reported last week that the UK taxpayer-owned lender was considering taking a provision based partly on Deutsche Bank AG's US$7.2 billion settlement and Credit Suisse Group AG's US$5.3 billion accord, both announced in December.

RBS investors, including the UK government, are paying a "heavy price for decisions made by RBS before the crisis. It's another painful example of that legacy," Chief Executive Officer Ross McEwan said on a call with reporters. The charge "reflects the legacy of time when RBS lost its way on its quest to build a global bank." The shares gained 1.9 per cent to 231.8 pence at 8.38 am in London trading on Thursday. The stock declined 26 per cent last year.

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Although the lender's board was able to make the fresh provision based on other European banks' settlements, Chief Financial Officer Ewen Stevenson said RBS isn't yet in any active negotiations with the Justice Department. Mr McEwan said he wouldn't speculate on whether changes in the US administration under President Donald Trump may change the tone of any talks or delay the process.  "We're keen to resolve this as quick as we can," McEwan said on the call with reporters. "We'll work constructively with the appropriate authorities whoever they are." RBS's fourth-quarter charge is larger than the 2.7 billion pounds that Citigroup Inc analysts led by Andrew Coombs predicted in a note to clients last month. The provision would have reduced the bank's common equity Tier 1 capital ratio by 1.35 percentage points based on where it stood in September, RBS said.

"If the US$3.8 billion provided for today ends up being the settlement amount with the DOJ on such matters, it would be well within market expectations for a US$2 billion to US$8 billion charge," Joseph Dickerson, a bank analyst at Jefferies International Ltd, said in a note to clients.

While the bank had about £9 billion of provisions for regulatory and legal matters on its balance sheet in September, analysts had said it probably needed more to cover residential mortgage-backed securities settlements and associated legal costs. The company is scheduled to report full-year earnings on Feb 24.

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